It seems the media are getting geared up for Labor Day next week. This is not easy to do, given the official v. unofficial unemployment rate, inflation, stock market gyrations, the Great Hotdog Hoodwink, and (with apologies to Grantland Rice and Miller, Layden, Crowley and Stuhldreher) the Four Horsemen of the Apocalypse.
Nevertheless, they're doing it. The plaints seem to be focusing on the failure of "the government" to "do something" and create jobs. A growing chorus, however, is highlighting the presumed greed of American corporations as evidenced by their hanging on to the $2 trillion or so in cash when they could be paying it out to workers in the form of higher wages and benefits.
Yesterday's posting explained why corporations might be hanging on to this money, but there is a better reason why the companies shouldn't be using it to create jobs or pay higher wages. For one thing, the money doesn't really belong to the companies. It belongs to the shareholders who, by natural right of private property should be able to receive that stored up cash in the form of dividends. They could then use the cash to satisfy their own consumption wants and needs, thereby stimulating the economy naturally without government intervention.
For another, raise wages and benefits without corresponding increases in real productivity, and a lot of workers are going to lose their jobs. All of a sudden, companies won't be able to afford to keep them on, not being able to make enough profits to cover the added costs. And this applies across the board to all companies. You can't raise costs to one company without doing it for all of them, and despite the fact that some companies are loaded, a lot aren't, and are operating on the edge.
What about the workers? Shouldn't they get some of the loot?
Well . . . yes. We've been saying that for years, if you've been paying attention. The problem is that you really can't justify taking away the rights of shareholders just because you think workers should get more money. What's the solution?
It's rather simple, really. It's so simple, they've thought of it before: make workers into shareholders so that they can get income increases from the bottom line as profit sharing, rather than increasing costs by raising wage and benefits. Charles Morrison recommended this in his 1854 Essay on the Relations Between Labour and Capital. William Cobbett also made noises along this line, as did William Thornton and Henry Fawcett — you know, all the guys. Louis Kelso and Mortimer Adler came along and showed how it could be done without redistribution or inflationary government spending.
That's why, in a way, it was so discouraging to read in today's Washington Post (Harold Meyerson, "How Steve Jobs Could Reboot the Working Class," The Washington Post, 08/31/11, A17) that Henry Ford is being held up as a model on what corporations should do with All That Cash. The story in brief: in 1914 Ford more than doubled the basic rate of pay at his factory, from $2.34 per day to $5.00 per day. At first this was intended to apply only to men with families, highly skilled mechanics, and widows with children. When everybody else threatened to go on strike unless they, too, were cut in on the plunder, Ford had to increase wages across the board. Riots broke out anyway among workers unable to convince Ford to hire them, and other automobile manufacturers took a serious financial hit.
This reminded us of something we'd read in Boswell's Life of Johnson some years ago. As Boswell related,
"Though by no means niggardly, his [Samuel Johnson's] attention to what was generally right was so minute, that having observed at one of the stages that I ostentatiously gave a shilling [twelve pence-about twenty cents] to the coachman, when the custom was for each passenger to give only sixpence, he took me aside and scolded me, saying that what I had done would make the coachman dissatisfied with all the rest of the passengers, who gave him no more than his due. This was a just reprimand; for in whatever way a man may indulge his generosity or his vanity in spending his money, for the sake of others he ought not to raise the price of any article for which there is a constant demand."
So, what should Ford have done rather than lock America into a permanent inflationary wage-price spiral? We'll let the late Walter Reuther of the U.A.W. field that question for us. As he said in testimony before the Joint Economic Committee of Congress on the President's Economic Report, February 20, 1967,
"Profit sharing in the form of stock distributions to workers would help to democratize the ownership of America's vast corporate wealth which is today appallingly undemocratic and unhealthy.
"The Federal Reserve Board recently published data from which it is possible to estimate the degree of concentration in the ownership of publicly traded stock held by individuals and families as of December 1962. Preliminary analysis of these data indicates that, despite all the talk of a "people's capitalism" in the United States, little more than one percent of all consumer units owned approximately 70 percent of all such stock.
"Fewer than 8 percent of all consumer units owned approximately 97 percent — which means, conversely, that the total direct ownership interest of more than 92 percent of America's consumer units in the corporation-operated productive wealth of this country was approximately 3 percent. Profit sharing in a form that would help to correct this shocking maldistribution would be highly desirable for that reason alone. . . .
"If workers had definite assurance of equitable shares in the profits of the corporations that employ them, they would see less need to seek an equitable balance between their gains and soaring profits through augmented increases in basic wage rates. This would be a desirable result from the standpoint of stabilization policy because profit sharing does not increase costs. Since profits are a residual, after all costs have been met, and since their size is not determinable until after customers have paid the prices charged for the firm's products, profit sharing as such cannot be said to have any inflationary impact upon costs and prices."
Maybe Reuther had something there.